Rev Acc Stud (2008) 13:292–294 DOI 10.1007/s11142-008-9070-7 Discussion of ‘‘On the relation between predictable market returns and predictable analyst forecast errors’’ Gerald T. Garvey Published online: 4 March 2008 Springer Science+Business Media, LLC 2008 1 Summary This paper should be inﬂuential and widely cited. It furthers our understanding of two major issues in ﬁnancial accounting. Most directly, the results undermine the validity of using analyst earnings forecasts as proxies for market expectations. The paper does a thorough job of estimating and documenting sources of analyst forecast error and shows that the market does not share many of these errors. The relevant results are nicely summarized in Table 6. Most strikingly, the results with revisions and past forecast error (UE) indicate that analyst forecast errors are signiﬁcantly autocorrelated, but this appears to be largely understood by the market. The paper’s main results are also informative about the relative reliability of some well-known return anomalies. Turning again to Table 6, we see that accruals and related accounting anomalies fare rather well in that much of their return- forecasting properties can be traced back to their ability to forecast analyst errors. The momentum and past revision anomalies do not fare so well.
Review of Accounting Studies – Springer Journals
Published: Mar 4, 2008
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